30-year fixed mortgage rates

The average interest rate on a 30-year fixed-rate mortgage jumped last week from 3.45% to 3.56%, mortgage giant Freddie Mac is reporting. One year ago, the popular loans were averaging just 2.77%.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” says Sam Khater, Freddie Mac’s chief economist.

The Federal Reserve has been on a path to undo its COVID-related economic policies that have kept mortgage rates in historically low territory. With inflation at a 40-year high, the central bank plans to raise interest rates several times this year and put an end to its pandemic buying of bonds and mortgage-backed securities.

Investment bank Goldman Sachs, which had been expecting the Fed to hike rates three times in 2022, now expects four increases: in March, June, September and December.

15-year fixed mortgage rates

The average 15-year fixed mortgage rate also has been on a swift upswing. It jumped last week to 2.79%, from 2.62%, Freddie Mac says. A year ago, 15-year loans were averaging a much lighter 2.21%.

These shorter-term mortgages are popular among refinancing homeowners. Going from a 30-year to 15-year loan is likely to mean higher monthly payments, but the lifetime interest costs will be much lower.

One thing to remember: Freddie Mac's numbers are simply averages. Higher — and even lower — rates are out there. Some lenders are still advertising 15-year refi loans at just over 2% and 30-year refinances for as low as 3%.

5-year adjustable mortgage rates

Rates on five-year adjustable mortgages (ARMs) were up as well last week, Freddie Mac says. The average five-year ARM went from 2.57% to 2.60%. Last year at this time, the five-year adjustable mortgage rate was averaging 2.80%.

ARMs begin with fixed interest rates for a period of years, then rise and fall at regular intervals. A 5/1 ARM adjusts every one year after the initial five-year period.

Adjustable-rate mortgages largely start out with lower rates than fixed-rate loans. But after a period of time, an ARM starts to adjust — that is, the rate moves up or down in sync with the prime rate or another benchmark.

How higher rates will affect your budget

New research from the Mortgage Bankers Association shows how rising rates are affecting home lending.

Mortgage applications from homeowners looking to refinance existing home loans fell 3% during the week ending Jan. 14 and were 49% lower versus the same week last year, the MBA reported last week. It was the slowest pace of refi activity in over two years, says Joel Kan, MBA's economic and industry forecaster.

Meanwhile, homebuyers are rushing to make purchases and take out mortgages before rates go higher. Applications for purchase loans climbed 8% in the week of Jan. 14, while the average size of those applications set a record at $418,500, the MBA says.

Supply chain backlogs, labor shortages and higher costs for building materials are pushing selling prices higher, explains Corey Burr, senior vice president at TTR Sotheby's International Realty in Washington, D.C.

“In 2022, we will see fewer house sales, but at eye-popping price levels,” Burr says.

Rising mortgage rates are compounding the challenges for first-time buyers, who are seeing their buying power erode. Every one-half of 1 percentage point change in mortgage rates essentially translates to a 6.5% in increase in home price, according to Ali Wolf, chief economist at market research firm Zonda.

“So if someone was completely maxed out buying a $300,000 home at 3.0% interest rate, the equivalent payment at 3.5% is for a $280,000 home,” Wolf notes.

Millions can still save on a refi — do you qualify?

Even with today's higher mortgage rates, some 5.9 millions homeowners are in a position to save $1.6 billion monthly by refinancing, the mortgage data and technology firm Black Knight tells MoneyWise. That works out to average savings of $275 a month per borrower.

If that’s not enough to convince you to search for a low refi rate, Black Knight says over 1 million of those homeowners could save at least $400 per month based on their existing interest rates and home equity.

If you think you might benefit from a refi, be sure to request quotes from multiple lenders. Research from Freddie Mac and others has shown that comparing at least five loan offers nets you the best deal on a mortgage.

The lowest rates typically go to borrowers with the strongest credit histories. So you might start the process by reviewing your credit score, which you can easily do for free.

If refinancing won’t work for you right now, there are other ways to cut your homeownership costs. When your home insurance comes up for renewal, take a little time to check rates from several insurers. You could be paying more than you have to.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Freelance Contributor

Nancy Sarnoff is a freelance contributor with MoneyWise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.

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